US President Donald Trump (R) US Secretary of State Mike Pompeo (2-R) and members of their delegation hold a dinner meeting with China's President Xi Jinping (L) Chinas Foreign Affairs Minister Wang Yi (2-L) and Chinese government representatives, at the end of the G20 Leaders' Summit in Buenos Aires, on December 01, 2018. -

J. P. Morgan's Marko Kolanovic released his 2019 outlook this morning. He's still overweight equities and underweight bonds, with projected earnings growth of 8 percent for the S&P 500 and a price target for the index of 3,100.

He seems stumped about why there is such a disconnect between what he views as strong market fundamentals and the negative way the market is acting. He discusses what he calls "the reinforcing feedback loop of real and fake negative news." In other words, he thinks that a lot of people are too negative, either out of ignorance of the fundamentals or because they want a weaker outlook to serve their political or economic agendas.

But then he throws in another, far more plausible, explanation for the market's volatility: "The risk that many market participants underestimated this year was the destabilizing impact of the US administration's trade policies...these policies might have erased up to ~10% of S&P 500 value this year."

A 10 percent reduction in the S&P 500 due to trade policy incoherence is a bold call, but it may not be far from the truth. Consider what happened Friday morning. Top White House economic adviser Larry Kudlow appeared on CNBC at 9:05 a.m. ET saying President Trump would consider extending the 90-day tariff truce with China if "good" progress was made on the negotiations.

Then, Peter Navarro, the director of the White House National Trade Council, appeared on CNN a little after 10 a.m. ET and fielded a question about whether the U.S. would walk away if China trade talks were not resolved in 90 days. Navarro answered that the U.S. would move forward with raising tariffs.

The Dow and the S&P, which were already off their highs, promptly dropped after those remarks and kept dropping.

What to make of this policy incoherence? It cannot be simply waved away by saying there are differences of opinion. As Steve Liesman, CNBC's economics correspondent, put it, "There are 17 members of the Federal Reserve Board and they seem to speak a little bit more in unison out of one voice than three members of the administration, when it comes to trade."